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Tech Winner is on the Verge of a Double-Digit Breakout

As the majority of the market embarked on the so-called "Trump rally" last month, some of the largest technology stocks were left in the dust. But the tech behemoths' struggles overshadowed some of the sector's smaller stocks, which did indeed rally with the market after the election.

In particular, one semiconductor stock is setting up for a breakout and another leg higher in an already impressive year of trading.

Marvell Technology Group (NASDAQ: MRVL), which provides integrated silicon solutions for storage, cloud infrastructure and multimedia applications, saw its stock soar on Nov. 17 after the bell. The catalyst: The company beat third-quarter earnings estimates and declared a share buyback. MRVL closed up more than 10% the next day.

On the charts, it was a clear and technically powerful breakout move.

Not only did volume swell to more than five times its average level, but prices punched through a strong resistance ceiling set by the September-to-November trading range.

It was the kind of move we'd expect on such good fundamental news. However, it left the stock somewhat overextended, pushing technical indicators to overbought levels. So, it should have been no surprise to see the backing and filling that took place over the next few days.

This was actually an excellent setup for the bulls. After two weeks of relatively orderly and low-volume declines, which included a rather large insider sell on Nov. 29, MRVL approached its former breakout level.

And then Goldman Sachs (NYSE: GS) downgraded the stock to a "sell" on Dec. 5, sending shares tumbling 3% at the open and erasing the breakout move.

Almost immediately, though, the bulls stepped in to stem the selling and, more importantly, spark the formation of a bullish technical reversal at a former resistance level, now acting as support. Basically, the market told us the correction was over.

That should be good enough news for new bulls to join in, but I'd like to see MRVL break above a small trendline at about $14.20, drawn from its post-earnings high. That would also mark a move above the Dec. 6 high, although more conservative traders will want to wait for a close above that level.

If we pull out to a longer-term chart, major price peaks in 2012, 2014 and 2015 in the $16.75 area present a rather formidable ceiling. But given the stock's current price just above $14, that still leaves plenty of room for profits.

That target will likely take a few months to achieve assuming a speed equivalent to rallies heading into prior peaks.

That being said, I expect the breakout and initial rally to be fairly quick. We could see shares scoot back to the November high around $13.50, perhaps with a small overshoot, in the next few weeks. So, that will be our first target.

The second target will be a longer-term move back to those major price peaks around $16.75. However, we will have to examine what happens if and when the first target is reached and, specifically, how deep any pullback from there might be.

There is nothing inherently dangerous about the first target, but after a year that saw the stock's price nearly double, we need to be aware of any changes that may occur.

There is one caveat here: The percentage of the stop-loss below the entry price is of similar size to the profit potential at the first target. Usually, I like a 3-to-1 ratio of profit to stop, but with the second target so enticing, this looks like a good gamble.

Recommended Trade Setup:

-- Buy MRVL at $14.20
-- Set stop-loss at $13.50
-- Set initial price target at $15.20 for a potential 7% gain in four weeks
-- Set secondary price target at $16.75 for a potential 18% gain in 12 weeks

Note: With a "backdoor" trading method, even a move to the initial target could be turned into 35% to 70% profits -- while putting less money at risk. Find out how here.